North Korea’s Leadership Transition Raises Questions
December 23, 2011 by SEI Investment Management Unit
The death of North Korea leader Kim Jong Il was announced on December 19, 2011. The Korean equity market plunged on concerns over the stability of the North Korean political system and the possibility of further military provocation, should Kim Jong-Un’s transition to power not occur in an orderly manner.
The official comments from North Korean media suggest that the power transfer has been completed. While this information appears to be correct, preparation for the transition began only a few years ago (versus 20 years of preparation for the transition that took place in 1994), and the success or failure of the transition may not be be visible for some time. The greatest current concern is the possibility that a power struggle in the North could lead to military provocation with the outside world, especially South Korea.
In this environment, South Korean equities may face short-term selling pressure until a final determination can be made regarding the transition.
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